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Political Connections and Corporate Borrowing: an Analysis on the Listed Real Estate Firms in China

Author

Listed:
  • Zan Yang

    (Tsinghua University)

  • Ying Fan

    (Tsinghua University)

  • Song Shi

    (University of Technology Sydney)

  • Jing Liao

    (Massey University)

Abstract

This paper investigates the relationship between political connections and corporate borrowing behaviour using the listed real estate development firms in China from 2001 to 2014. Evidence from China is of particular importance due to China being the world’s largest emerging and transition economy. We find that the benefit of political connections is manifested in firms obtaining loans from state-controlled banks in the first instance, but that political influence diminishes over subsequent loan extensions. The performance based requirement prevents banks providing systemic favourable treatment to the connected real estate firms, especially after the Chinese banking system reform in 2006. The results provide fresh insight on the risks and benefits of political connections in the Chinese real estate market as it transitions from a centrally planned to a market based economy under on-going market oriented banking and political reforms.

Suggested Citation

  • Zan Yang & Ying Fan & Song Shi & Jing Liao, 2018. "Political Connections and Corporate Borrowing: an Analysis on the Listed Real Estate Firms in China," The Journal of Real Estate Finance and Economics, Springer, vol. 57(3), pages 315-350, October.
    • Handle: RePEc:kap:jrefec:v:57:y:2018:i:3:d:10.1007_s11146-017-9629-9
    DOI: 10.1007/s11146-017-9629-9
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    3. Nan Zhang & Qiaozhuan Liang & Huiying Li & Xiao Wang, 2022. "The organizational relationship–based political connection and debt financing: Evidence from Chinese private firms," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 69-105, January.
    4. Liu, Shiyuan & Du, Jiang & Zhang, Weike & Tian, Xiaoli & Kou, Gang, 2021. "Innovation quantity or quality? The role of political connections," Emerging Markets Review, Elsevier, vol. 48(C).
    5. Shi, Song & Wu, Shuping & Yang, Zan, 2023. "Competitive Advantages of Hong Kong Land Development Firms in Mainland China: A Tale of Initial Success and Subsequent Decline," Working Paper Series 23/8, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    6. Yujue Wang, 2022. "Compacter networks as a defensive mechanism: How firms clustered during 2015 Financial Crisis in China," Papers 2212.01557, arXiv.org.
    7. Mirzaei, Ali & Pasiouras, Fotios & Samet, Anis, 2021. "State ownership, macroprudential policies, and bank lending," Journal of International Money and Finance, Elsevier, vol. 117(C).
    8. Wu, Shuping & Yang, Zan, 2020. "Informal government preferences and asymmetric land allocation in China," Land Use Policy, Elsevier, vol. 99(C).

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    More about this item

    Keywords

    Political connections; Corporate borrowing; Listed real estate firms; China;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G2 - Financial Economics - - Financial Institutions and Services
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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